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Source: Reuters

Reuters Summit-Indonesia Islamic insurance growth to ease to 30%

Published: 09 Feb 2010 18:44:02 PST

* Takaful premium growth seen easing to 30 percent in 2010

* Two takaful units may find it tough meeting capital rules

JAKARTA, Feb 10 - Premium growth in Indonesia's Islamic insurance, or takaful, market could moderate to 30 percent this year from a blistering 50-60 percent in recent years, a top official told Reuters.

"Historically, premium growth in takaful was quite impressive," said Isa Rachmatarwata, head of the insurance department at the capital markets regulator Bapepam, ahead of the Reuters Islamic banking summit from Feb 15-18.

Premium growth this year will be "around 30 percent. That is our moderate target," he said.

Islamic-compliant insurance has posted annual premium growth of above 50 percent in the last five years, reflecting the overall small size of the market and low base effect, he said, adding that growth will remain high over the next two years.

The world's most populous Muslim country has lagged its neighbour Malaysia in developing its Islamic finance market.

Takaful firms have recorded up to 1.82 trillion rupiah ($194.1 million) in premiums as of September last year, representing a mere 2.83 percent of the total premiums for the insurance industry but up from just 2 percent in 2008, according to data from Bapepam. Data up to December 2009 was not available.

Despite the tiny market share, Islamic insurance has still attracted several foreign companies, including Britain's biggest insurer Prudential <PRU.L>, Europe's top insurer Allianz <ALVG.DE>, Toronto-based Manulife Financial Corporation <MFC.TO>, and French insurer AXA <AXAF.PA>.

Southeast Asia's largest economy has three full-fledged Islamic insurance firms, three sharia re-insurance businesses, and 36 sharia units of conventional insurance businesses.

Rachmatarwata said Bapepam expects most of the takaful units and firms would be able to meet the a new minimum capital requirement by the end of this year.

"We have identified at least 2 takaful units that may find it difficult to meet the requirement," Rachmatarwata said, referring to the requirements issued last year to help takaful units and firms strengthen their capital base.

Under the regulation, the sharia unit of conventional insurance business must have minimum capital of 25 billion rupiah by the end of 2010, while full-fledged takaful businesses are required to raise their capital to 50 billion rupiah.

Takaful businesses must also implement new standards in their financial reports to comply with sharia requirements to give a clearer picture of their financial situation.

Asset growth in takaful rose 40 percent to 2.6 trillion rupiah in September 2009 from 1.85 trillion rupiah in December 2008.

Takaful companies have diversified their investments, with 54 percent invested in time deposits, 19 percent in mutual funds, 16 percent in government and corporate sukuk, and the remainder in shares and property.

"We expect to get approval from the sharia council for investment in asset-backed securities soon to diversify our products," Rachmatarwata added. (Click on [ID:nISLAMIC] for more Islamic finance stories and <ISLAMIC> for a speed guide) ($1 = 9,375 rupiah)

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